What on earth has gone wrong? It seemed at the start of august as if the FTSE 100, having broken out of its trading range, was on its way to all-time highs. Traders and analysts were confident that, with the summer over and interest rates stable, the big money could come into the market. Retail stockbrokers reported that business was returning to its spring highs.

And now look at the market. Footsie has fallen almost 600 points. The bottom of the 6,000-6,600 trading range, looks more in danger than the top.

Regular readers will know I've been pretty cautious about the UK market and thought Footsie would be trapped between 6,000 and 7,000 all year. Admittedly that is a big range but, since Footsie started the year at 6,931, the implication was that it would not be a good year for investors.

But I admit to being a bit puzzled by the scale and speed of the recent fall. It could be oil, but the oil price has been high for some time and analysts seem to think high oil prices will only have a small impact on the economy. I think they are overly complacent but this is a minority view.

We have had a number of profit warnings but the folks at IBES, who monitor this, say the percentage of warnings is less than in a normal results season.

So the only explanation I can give is confidence. The bull market has been built on the assumption that everything will go right, that corporate earnings can keep growing at double digits per annum, that inflation will stay low and growth high, that foreigners will continue to fund the US trade deficit and so on.

Strains have showed up in the system - the weak euro, the high spread of corporate bonds over government debt, the low savings ratios in the US - but these have been insufficient to stop the bandwagon. As the saying goes, bull markets always have to climb a wall of worry.

Suddenly, this confidence is being tested. Most people assumed that the oil price rise was just a blip which would quickly subside; it hasn't. Most people assumed that the euro was undervalued and would recover; it hasn't.

Some of the irrational exuberance, in short, has been drained away from the market. And this can be a self-feeding process. For anyone expecting 20 per cent plus returns a year, 2000 will have been a disappointment. The chances are that such people will reduce the amount of cash they commit to the market. That may put further pressure on share prices and so on.

This vicious cycle could be broken, of course, by some good news such as a sudden collapse in the oil price. Equity bulls might want to pray for a mild US winter.